Accountable Care Organizations and Future Healthcare Delivery

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1 Accountable Care Organizations and Future Healthcare Delivery Introduction Accountable care organizations (ACOs) are a key component of healthcare reform. This module covers the establishment of accountable care organizations and explores their potential impact on the pharmaceutical industry. Objectives Upon completion of this module, you will achieve the following objectives. Test questions will reflect these objectives. 1. Define the term accountable care organization (ACO), describe its basic features, and identify initiatives intended to expedite their startup. 2. Explain how ACOs differ from integrated delivery systems (IDSs) and managed care organizations (MCOs). 3. Describe how ACOs measure quality and share savings and risk. 4. Examine the implications of ACOs for the pharmaceutical industry. 5. Describe other coordinated care approaches being piloted in the healthcare system. Reform Sets Stage for Accountable Care Organizations When the Patient Protection and Affordable Care Act known simply as the Affordable Care Act was enacted in March of 2010, it introduced new models to improve healthcare outcomes while containing costs. These models were designed to curb inefficiencies and gauge performance in organizations that deliver healthcare. One of the approaches authorized by the Affordable Care Act was the creation of accountable care organizations (ACOs). These organizations allow providers to participate in a new shared savings program through the Centers for Medicare & Medicaid Services (CMS). ACOs are networks of physicians and other providers that work together to improve the quality of healthcare and reduce the costs of caring for a defined patient population, such as patients with diabetes or cancer. 1

2 The basic features of an ACO include: A diverse group of providers. This may involve primary care physicians, specialists, physician practice groups, and hospitals. Patient assignment. Patients who receive most of their care from an ACO primary care provider are automatically "assigned" to that ACO. They are assigned retrospectively or prospectively, based on their use of primary care services. Patients are to be notified of their participation in the ACO and can opt out of sharing their personal data Performance measurement. Payers collect data on utilization and costs over a period of time, and providers have to meet minimum quality standards to continue participating in the ACO. Shared savings. If an ACO saves money based on set spending targets, the members are entitled to a share of the savings. Initiatives Aimed at Jumpstarting ACOs Many believe that participation in ACOs might be limited to large providers (eg, hospitals) while discouraging private-practice physician groups from forming their own ACOs. Through its Innovation Center, the Center for Medicare & Medicaid Services (CMS) introduced three initiatives in May of 2011, intended to expedite the path to Medicare ACOs for all levels of providers. These initiatives include: A Pioneer ACO Model designed for healthcare organizations and providers that are already experienced in coordinating care for patients across care settings. This model allows these groups to participate sooner in Medicare ACOs and enables them to move more quickly from a shared savings payment model to a population-based payment model, which would pay a single price for all the healthcare services needed by a group of people for a fixed period of time. An Advanced Payment Model designed to give certain likely ACOs access upfront to shared Medicare savings, thus enabling them to invest in the necessary infrastructure. Accelerated Development Learning Sessions structured under the CMS Innovation Center and designed to help providers take steps toward delivering more coordinated healthcare and becoming an ACO. How ACOs Compare with Integrated Delivery Systems While they are not synonymous, ACOs can be considered a form of integrated delivery system (IDS). An IDS is also known as an integrated healthcare system (IHS) or integrated delivery network (IDN). In an integrated delivery system, healthcare 2

3 providers band together to coordinate patient care, broaden their range of services, expand a geographic coverage area, or more successfully compete for managed care contracts. An example of an IDS is when several group practices align with a hospital to attract managed care organizations (MCOs) and employers, and provide a wide spectrum of inpatient and outpatient care. The ACO Difference Many experts believe the ACO model will spur development of more integrated delivery systems across the country. However, it should be noted that ACOs differ from the traditional IDS model in which patients are formally enrolled in systems that compete with each other. Recall that patients do not enroll in an ACO; instead, they are assigned to the ACO of the primary care provider from whom they receive most of their care. The ACO structure is designed around treatment outcomes for a specific problem or condition. As an example, a patient with diabetes and cancer may be included in two ACOs: one that is focused on diabetes outcomes and another that is being evaluated on malignancy outcomes. Primary care physicians can participate in only one ACO, but specialists and hospitals may participate in several. For example, a specialist may interact with several ACOs if he or she accepts referrals from primary care doctors who are in different ACOs, or if the specialist has privileges at multiple hospitals that are in different ACOs. Over time, the ACO model is expected to improve outcomes as it increases efficiencies and creates cost savings. Because the payment structure is based on clinical outcomes, some experts believe this newer approach may have a better chance than traditional models to move healthcare away from fee-for-service payment. How ACOs Compare with Managed Care Organizations In addition to sharing similarities with integrated delivery systems, ACOs are also like managed care organizations to some degree. The term managed care organization (MCO) is frequently used to describe any healthcare delivery organization characterized by a defined population of enrollees and healthcare providers and a prospective rather than retrospective means of provider reimbursement. When managed care was introduced as an alternative to fee-for-service care, employers embraced it. By the mid- 1990s, about three-quarters of all American employees received their healthcare through MCOs. 3

4 Through a variety of cost-cutting strategies, managed care succeeded initially in restraining the total costs of healthcare in the United States. These early strategies included, among others: Gatekeepers, who functioned as the patient s first encounter with the healthcare system, controlling referrals and guiding the types of care patients received. Closed formularies, which placed significant restrictions on the drugs physicians could prescribe. Therapeutic substitution, which allowed pharmacists to substitute similar drugs for prescribed drugs. In addition, early models of managed care often used capitated payment systems. Capitation is a payment method in which a provider is prepaid a fixed, per capita amount for each person covered, regardless of the actual number or nature of services delivered. Health maintenance organizations (HMOs), a form of MCO in which services are restricted to subscribers who prepay a premium that covers inpatient and ambulatory care, were traditionally centered on capitation. Under these strategies, the nation's healthcare inflation in the mid-1990s was the lowest since the US government first began tracking it in Although managed care contained costs for a while, it became evident that this was not enough. Spending growth had peaked at 10% by 2001 and then gradually slowed to a rate of 4.4% by 2008, still outpacing inflation and the growth of the national income. This trend continues today. Besides failing to adequately contain costs, many of these early strategies fueled dissatisfaction among both providers and patients. Providers often found themselves in contention with payers as well as patients, who felt they had lost control over their healthcare. Under capitated systems, many patients resented underlying features that restricted their ability to choose their care providers. Often, patients and providers alike were concerned that capitation resulted in incentives to deny care. The ACO Difference In many ways, ACOs emerged naturally as a way of promoting integration while avoiding some of the negatives associated with earlier attempts at managed care. In ACOs, groups of healthcare providers and hospitals join forces to take responsibility for the quality, cost, and overall care of a population of patients. They accept payment arrangements that foster efficient, high-quality care. If the ACO does well, the savings it 4

5 achieves are shared among the providers or allocated back into the system to sustain high value care. A key distinction of the ACO from the more rigid earlier models of managed care is that the ACO avoids the stigma associated with capitation. While ACOs may appear similar to HMOs that tried to control costs in the past, several prevailing factors could increase the chances of providers forming ACOs that succeed, including: Mandated Medicare and organizational reform under the Affordable Care Act. The inability of employers and localities to afford medical expenses, especially during the recent economic downturn. The availability of sophisticated software to better estimate and manage medical risk. The clinical challenges and enormous financial cost of managing chronic diseases. It is worth noting that some insurance companies, such as Cigna and Humana, have been piloting their own ACOs. These payers have joined with physicians and hospitals to provide care for their plan s members. If the physicians and hospitals perform well on quality measures, they could earn additional incentive payments from the payers. However, other commercial insurance plans have expressed concerns that ACOs could ultimately drive up healthcare costs in certain markets. As ACOs continue to evolve, health plans will keep a keen eye on the possible implications for their business. How ACOs Share Savings and Measure Quality under Medicare By forming ACOs, providers may participate in the Medicare Shared Savings Program, which rewards ACOs that slow down the growth in healthcare costs while meeting quality standards. Medicare estimates that ACOs could save the government as much as $960 million over three years. To join the program, ACOs are required to take responsibility for at least 5,000 Medicare fee-for-service patients for three years. As already mentioned, the primary ACO model does not require enrollment. Rather, patients are "assigned" to the ACO on their patterns of service use. If a patient typically sees a primary care physician who belongs to an ACO, all of that patient s care is "assigned" to that ACO. If the costs incurred by the ACO s patients are sufficiently below Medicare s spending projections for that patient population, the ACO shares in the savings realized by Medicare. On the other hand, if the costs are too high, the ACO could be at risk, depending on how it established its risk model. Under some risk models, ACOs will not be at risk for losses until their third year 5

6 of participation. Others, particularly those with more experience managing risk, may opt to share the savings and losses for all three years in the program. In terms of quality, ACOs will be measured according to five areas affecting patient care: The patient s experience of care Care coordination Patient safety Preventive health Health of at-risk or elderly patients Ultimately, the government expects ACOs to be patient-centered organizations that deliver seamless, high quality care to traditional Medicare beneficiaries. Impact of ACOs on the Pharmaceutical Industry If ACOs become a key component of the healthcare delivery system, the pharmaceutical industry may need to adjust its business strategies. As providers assume more risk for losses, companies may face greater pressure to demonstrate positive patient outcomes and cost savings from their products. For example, more providers will demand comparative effectiveness research (CER), which provides direct comparisons of two or more existing therapies to determine which works better in clinical practice. Pharmaceutical companies may also find it in their best interest to form alliances with ACOs, particularly those looking for value-added programs and services that can help manage their risk. In general, the services pharmaceutical companies may provide to offer the most value to ACOs would involve: Managing high cost areas, such as costs associated with specific diseases (asthma, diabetes, hypertension, congestive heart failure); some companies may be able to provide specific disease management programs or function as a partner in such programs. Improving medication compliance. Expanding patient access to healthcare information and education. Partnerships with ACOs may be very beneficial for a pharmaceutical company, particularly if the manufacturer is able to customize its products and services to meet the needs of a specific ACO. Ultimately, the final customer the patient may also benefit through lower costs for healthcare services and improved quality of care. The fundamental shift in focus is from promoting product utilization to creating long-term partnering strategies that meet the changing needs of these organizations. 6

7 Implications for Healthcare Representatives As ACOs continue to evolve, it is likely that representatives roles will change as well. As physicians and hospitals assume more risk, they will want to interact with representatives who understand their business and risk model and can fill a more consultative role. Similarly, healthcare representatives will need to have strong clinical acumen and deep familiarity with current practice guidelines. For example, representatives may need to present their products to ACO stakeholders and decision makers in the context of clinical practice guidelines. In such an environment, representatives must also understand formularies and be able to position products in a value-based formulary environment. Pharmacoeconomic studies, cost-effectiveness research, and evidence-based research will be important elements of value-focused discussions with multiple stakeholders. Other Coordinated Care Approaches In addition to ACOs, the healthcare system is piloting other coordinated care approaches, which are designed to make it easier for physicians in different care settings to work together to care for patients. These include patient-centered medical homes, the use of bundled payment systems, and hospital value-based purchasing. Patient-Centered Medical Home The Affordable Care Act allows states to provide medical assistance under the Medicaid program to eligible individuals with chronic conditions who select a provider as that individual's "health home." By taking a whole person orientation, the patient-centered medical home (PCMH) establishes the patient s primary care physician as the leader of a team of healthcare providers that collectively takes responsibility for the ongoing care of the patient. As the patient s needs change throughout his or her life, the members of the team will change to meet the new needs. This allows the team to coordinate all aspects of care, including acute care, chronic care, preventive care, and end-of-life care. The PCMH model empowers primary care physicians to coordinate the care of their patients throughout the healthcare system. Care in the PCMH is facilitated through patient registries, health information technology (including electronic health records), and other tools that help ensure patients get care when and where they need it. Rather than competing with the ACO, the PCMH complements it by helping providers incorporate the additional accountability and administrative activities associated with an ACO. However, unlike the ACO, the PCMH does not offer explicit incentives for providers to work collaboratively to reduce costs and improve quality. 7

8 Bundled Payments The bundled payment is a middle ground approach between fee-for-service and capitation. While fee-for-service remains the most common form of healthcare payment, it is often blamed for our current system s high costs and lack of coordinated care. Bundled payment systems, also called "case rates" or "episode-based payments," make a single payment for all services related to a treatment or condition. As an example, a bundled payment for a coronary bypass graft (CABG) surgery would cover: Surgery and pre-surgical expenses. Facility and physician fees for the surgical procedure. Follow-up care (including monitoring and cardiac rehabilitation). Under bundled payment systems, providers assume financial risk for the costs of services for a specific treatment or condition, as well as the costs of any preventable complications. This is unlike capitation, in which the provider is at risk if a patient develops any condition that requires treatment. Instead, the risk that providers assume with bundled payments is limited to the costs of the specific treatment or condition being managed, such as CABG surgery. Because providers in a bundled payment system receive a set payment covering the average cost of the bundled services, there is an incentive to reduce the number of services that have minimal or no benefit. This set payment means higher-cost providers are penalized financially while lower-cost providers profit. Medicare has tested bundled payments in heart bypass surgery and cataract outpatient surgery. Currently, there are several additional bundled payment approaches under discussion for Medicare. Private sector payers and providers have also evaluated bundled payment programs for arthroscopic (knee and shoulder) surgeries as well as cardiac surgeries. Hospital Value-Based Purchasing Starting in October 2012, Medicare will reward hospitals that provide high quality care through the new Hospital Value-Based Purchasing (Hospital VBP) program, authorized by the Affordable Care Act. For the first time, hospitals will be paid for inpatient acute care based on the quality, not just the quantity, of services they provide. The program implements a pay-for-performance system affecting more than 3,500 hospitals across the country. 8

9 Beginning in fiscal year 2013, Medicare will make incentive payments to hospitals based on how well they perform on performance measures or how much they improve, compared with the baseline period. Medicare will score hospital performance in two domains: The clinical process of care domain, which includes 12 clinical measures (such as rates of hospital-acquired infections and surgical care improvement) The patient experience of care domain, which is based on patient satisfaction scores from the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS). HCAHPS surveys a random sample of hospital patients about their levels of satisfaction with several aspects of their stay, including: how well their nurse and doctor communicated with them, how well staff explained the patients medications, and how well the staff managed the patients pain. Due to its subjective nature, some controversy has surrounded the patient experience domain. In fiscal year 2013, the clinical process of care domain will be weighted at 70% of the hospital s total score, while the patient experience of care domain will account for 30% of the total score. Also beginning in 2013, hospitals will receive a payment reduction if they have excessive 30-day readmissions for patients with heart attacks, heart failure, and pneumonia. By 2015, hospitals with certain hospital-acquired conditions, such as catheter-associated urinary tract infections or pressure ulcers, will receive further Medicare payment reductions. Overall, these measures are intended to encourage hospitals to follow best practices, which lawmakers expect will result in higher quality care for patients as well as better outcomes. 9

10 Summary The following table summarizes the information presented in this module. A ccountable Care Organizati ons and Future H eal thcare D el i very The Affordable Care Act (ACA) includes reforms aimed at reducing costs and improving care through new models, such as accountable care organizations (ACOs). ACOs are networks of physicians and other providers that work together to improve the quality of healthcare and reduce the costs for a defined patient population. Patients who receive most of their care from an ACO primary care provider are automatically "assigned" to that ACO. If an ACO saves money based on set spending targets, the members will be entitled to a share of the savings. The development of ACOs may speed the transition to newer healthcare delivery systems that will lead to savings and efficiencies as well as better patient outcomes. CMS initiatives aimed at jumpstarting ACOs include the Pioneer Model, Advanced Payment Model, and Accelerated Development Learning Sessions. ACOs can be considered a form of IDS; however, ACOs differ from traditional IDS models in which patients are formally enrolled in systems that compete with each other. The ACO model may encourage development of more IDSs. ACOs are similar to MCOs that have tried to control costs in the past, although they avoid the stigma of capitation. Through ACOs, providers can share savings via the Medicare Shared Savings Program. ACOs will be measured in five areas of quality the patient s experience of care, care coordination, patient safety, preventive health, and health of at-risk or elderly patients. As ACOs evolve, the pharmaceutical industry will likely face greater pressure to demonstrate positive patient outcomes and cost savings from their products. Some manufacturers may respond by building alliances with ACOs and focusing on long-term partnering strategies that meet the needs of these organizations. The representative s role will require understanding of the ACO business and risk model, strong clinical acumen, familiarity with practice guidelines, and an ability to create and promote value to multiple stakeholders. Other types of coordinated care approaches being piloted include: Patient-Centered Medical Homes. Bundled Payments. Hospital Value-Based Purchasing. 10

11 Progress Check 1. A key rationale for accountable care organizations (ACOs) is that they: a. Bring providers together to improve quality and reduce costs for a patient population. b. Replace managed care organizations (MCOs). c. Limit providers liability and offer tax advantages. d. Allow providers to reduce their technology costs by pooling resources. 2. ACOs feature all of the following except: a. Shared savings among members. b. Formal patient enrollment. c. A range of providers, including physician groups and hospitals. d. A focus on performance measurement. 3. ACOs differ from health maintenance organizations (HMOs) in that ACOs: a. Are an alternative to traditional fee-for-service payment. b. Accept payment arrangements that foster efficiency and quality. c. Promote integration between groups of healthcare providers. d. Are not centered on capitation, which providers and patients have associated with incentives to deny care. 4. Which of the following statements are true about how ACOs can share savings and risk? (Circle all that apply.) a. ACOs can opt to share the savings and losses for all three years in the program, particularly if they have experience managing risk. b. ACOs can opt to share the savings only for all three years in the program. c. ACOs can choose to share the risk for losses only for all three years in the program. d. ACOs can opt to share in the savings for all three years of the program and not be at risk for losses until the third year of participation. 11

12 5. Which of the following are coordinated care approaches designed to reduce costs and improve quality? (Circle all that apply.) a. Medicare s Hospital Value-Based Purchasing program, which pays for inpatient acute care based on the quality of care that hospitals provide b. Bundled payments, or episode-based payments, that make a single payment for all services related to a treatment or condition c. Integrated delivery networks, which allow providers to band together to offer more services to patients d. Patient-centered medical homes, which state Medicaid programs can implement to designate a leader and team that is responsible for a patient s care 6. Which of the following services offered by pharmaceutical companies may provide the most value to ACOs? (Circle all that apply.) a. Managing high cost areas, such as healthcare costs associated with asthma or diabetes b. Sponsoring educational seminars on their products for physicians c. Improving medication compliance d. Expanding patient access to healthcare information and education 12

13 Progress Check Answers The answer to each question contains reinforcement of important information and provides the number(s) of the objective(s) to which the question relates. If your answer is incorrect, you can return to the material related to that objective for further review. 1. a: As defined by the Affordable Care Act, ACOs are networks of physicians and other providers that work together to improve the quality of healthcare and reduce the costs for a defined patient population. (Objective 1) 2. b: ACOs feature patient assignment, meaning that patients who receive most of their care from an ACO primary care provider will be assigned to that ACO. Other ACO features include a diverse group of providers; performance measurement; and shared savings. (Objective 1) 3. d: HMOs, a form of managed care organization, were traditionally centered on capitation, which many providers and patients resisted. ACOs avoid the stigma of capitation while retaining some of the positive aspects of managed care: more integration of care; a focus on efficiency and quality; and a way to reduce the high costs associated with traditional fee-for-service payment. (Objective 2) 4. a, d: Under some risk models, ACOs will not be at risk for losses until their third year of participation. Others, particularly those with more experience managing risk, may opt to share the savings and losses for all three years in the program. (Objective 3) 5. a, b, d: Besides ACOs, other approaches being tested to coordinate care include patient-centered medical homes, which establish the primary care physician as the leader of a patient s care team under some state Medicaid programs; bundled payments, which provide a single payment for all services related to a treatment or condition, including surgical fees, facility fees, and follow-up care; and Medicare s Hospital Value-Based Purchasing program, which pays hospitals based on how well they perform on performance measures. (Objective 5) 6. a, c, d: Services that a pharmaceutical company offers that may provide the most value to ACOs involve: managing high-cost areas, such as costs associated with specific diseases; improving medication compliance; and expanding patient access to healthcare information and education. (Objective 4) 13

14 Key Terms Accountable care organization (ACO) Bundled payment Capitation Closed formularies Comparative effectiveness research (CER) Gatekeeper Health maintenance organization (HMO) Hospital value-based purchasing Integrated delivery system (IDS) Managed care organization (MCO) Patient-Centered Medical Home (PCMH) Therapeutic substitution 14

15 Bibliography.Booz VP Advises Pharma: Show Value to Gain Market Access. The Pink Sheet. May 16, CMS Seeks to Jumpstart Accountable Care Organization Program. The Pink Sheet. May 18, Pioneer ACO Model. Center for Medicare & Medicaid Innovation. Available at: ABA Health esource: _health_law_esource_1104_gassman.html Annotation from Evolution of Managed Care; Source: AHA Committee on Research. Accountable Care Organizations. AHA Synthesis Report. June 2010 Annotation from Evolution of Managed Care, Source: AHRG PCMH Resource Center, home/1483 Annotation from Evolution of Managed Care; Source: Patient Centered Primary Care Collaborative Joint Principles of the Patient Cantered Medical Home. February 2007 Annotation from Evolution of Managed Care; Source: Annotation from Evolution of Managed Care; Source: RS Suggestion: Bundled Payment. Annotation from Evolution of Managed Care; Source: Health Affairs Health Policy Brief, July 27, 2010; Annotation from Evolution of Managed Care; Source: AHA Committee on Research. Accountable Care Organizations. AHA Synthesis Report. June 2010 Annotation from Key Issues in Disease Management: Source: Bohland P, et al. Accountable Care Organizations Hold Promise, But Will They Achieve Cost and Quality Targets? Managed Care. October Pages Annotation from Key Issues in Disease Management; Source: Becoming Accountable Opportunities and Obstacles for ACOs. Harold S. Luft, Ph.D. The New England Journal of Medicine. 10/7/10 Annotation from Recent US Regulatory Mandate1; Source: Affordable Care Act Patient Fact Sheet Gov.org Annotation from Streamlining Healthcare through Integrated Delivery Systems; Source: 21 st Century Health Care Case for Integrated Systems NEJM Source: AMedNews. 15

16 Source: CMS fact sheet, April 29, 2011: eckdate=&checkkey=&srchtype=1&numdays=3500&srchopt=0&srchdata=&keywordtype= All&chkNewsType=6&intPage=&showAll=&pYear=&year=&desc=&cboOrder=date Source: Healthcare.gov ACO fact sheet. Source: HFMA. Source: Pharmaceutical Executive blog, April 5, Source: Source: 16

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